FDI & China’s economic development

EVER since China decided to execute its opening up policy, it has made economic progress in leaps and bounds. Trade and investment are considered the main engines for growth and development, especially for developing countries. According to data from the United Nations Conference on Trade and Development (UNCTAD), FDI inflow to China has ranked first among developing countries for 27 consecutive years. China’s economic development over the past four decades is largely credited to the reform and opening up featuring substantive inflow of foreign direct investment (FDI). There can be no economic prosperity without opening up, and there can be no high-level opening up without sound rule of law. To draw more foreign investors, a fair and complete legal system is crucial.
Three older statutes regarding foreign investment were passed by the National People’s Congress between 1979 and late 1980s. These laws have now become archaic. So, the draft Foreign Investment Law, is being reviewed by the National People’s Congress (NPC), China’s national legislature. The new legislation is a fundamental law for China’s foreign investment and innovative improvement of its foreign investment legal system. It will promote and protect foreign investment in China by creating a stable, transparent and predictable market environment for fair competition. It was proposed several years ago but now China is close to passing the law. At the ongoing NPC annual session, deliberation on the draft law is a major task for nearly 3,000 lawmakers from across the country. The process demonstrates China’s commitment to further deepening reform and pursuing high-level opening up. The draft law stipulates that China will manage foreign investment according to the system of pre-establishment national treatment plus a negative list.
This means that foreign investors and their investments shall enjoy treatment no less favorable than that afforded to Chinese investors and their investments at the stage of investment access. If approved by the NPC, the new law will take China’s opening up to an unprecedented high level. China’s resolve to make its investment climate more equitable for domestic and foreign capital is depicted by the draft law and enables the investors to compete on a level playing field. The fresh legislation pertaining to FDI also guarantees that foreign-invested enterprises will be able to take part in standard-setting work on an equal footing and in government procurement through fair competition. The draft law enhances the protection of IPR of foreign investors and prohibits forced technology transfers through administrative means.
IPR protection is a worldwide issue. The Chinese government has taken concrete measures and made headway in IPR protection in recent years. Proper protection of IPR serves not only the interests of foreign investors, but also the interests of China, as it counts on innovation and knowledge to fuel its next round of high-quality growth. History is replete with examples of openness bringing progress, while seclusion leads to backwardness. In the era of globalization, it is economic suicidal for a country to try to shut its door to foreign investment. China takes cognizance of this harsh reality since it has suffered in the past. The Foreign Investment Law is a landmark law that will open China’s door wider to the outside world and another symbol of China’s deference to the rule of law.
By the end of 2018, about 960,000 foreign-invested enterprises had been set up in China, with the accumulated FDI exceeding 2.1 trillion U.S. dollars. China is now home to more than 2,000 regional headquarters and R&D centers of multinational companies. In 2018 alone, non-financial FDI into China reached about 135 billion dollars, the world’s second largest. Owing to painstaking efforts by the Chinese government, the country’s investment environment has improved significantly over the years. According to the World Bank, China ranked 46 globally for ease of doing business in 2018, up from 78 for 2017. Over the past four decades, foreign firms have reaped remarkable returns from China’s huge market and robust growth. With China’s business and legal environment improving and the income level of its 1.4 billion people rising, foreign companies’ best days in China are yet to come.
At the NPC, Chinese President Xi Jinping has called for perseverance in the fight against poverty as there are only two years left for the country to meet its goal of eradicating extreme poverty by 2020. President Xi Jinping plans to stick to his resolve of eradicating poverty from China. Decisive progress has been achieved in the country’s tough fight against poverty over the past years, marking a new chapter in the poverty reduction history of mankind. President Xi has warned that the tasks ahead remain arduous and hard as those still in poverty are the worst stricken. Explaining the criteria of lifting people out of poverty, Xi has declared that the poor should no longer need to worry about food and clothing while enjoying access to compulsory education, basic medical care and safe housing. The practices of formalities for formalities’ sake and bureaucratism hamper the effective advancement of poverty reduction, he said, stressing a firm hand in rectifying malpractices in poverty relief.
Xi has directed Party Committees and governments at all levels to shoulder their responsibilities in the critical battle against poverty. He ordered efforts to redress undesirable conduct of officials in a timely manner, as well as special campaigns to target corruption and bad conduct in poverty reduction. It is heartening that while China’s economic development is on a path of steady progress, efforts to prevent and control pollution and issues pertaining to the environment are also being effectively addressed.
—The writer is retired PAF Group Captain and a TV talk show host.